The

Reward One

Company manufactures windows. Its manufacturing plant has the capacity to produce

12,000

windows each month. Current production and sales are

10,000

windows per month. The company normally charges

$250

per window.

Cost information for the current activity level is as follows:

Variable costs that vary with number of units produced

Direct materials

$600,000

Direct manufacturing labor

700,000

Variable costs (for setups, materials handling, quality control, and so on) that vary with number of batches, 100 batches $1,500 per batch

150,000

Fixed manufacturing costs

250,000

Fixed marketing costs

400,000

Total costs

$2,100,000

Requirement 1. Should

Reward One

accept this special order? Show your calculations.

Begin by completing an analysis, and start by showing the computation of the company's operating income without the special order. Next, calculate operating income with the special order, and then calculate the differences between the two columns. (Complete all input fields. For amounts with no change, make sure to enter "0" in the appropriate cells of the Difference column.)

		Without
		One-Time Only
		Special Order
		10,000 Windows
Revenues
Variable costs:
	Direct materials
	Direct manufacturing labor
	Batch manufacturing costs
Fixed costs:
	Fixed manufacturing costs
	Fixed marketing costs
Total costs
Operating income

With

One-Time Only

Special Order

12,000 Windows

Difference

2,000 Windows

Based on the above calculations, Reward One should			the one-time only special order if it has no long-term
implications because accepting the order		operating income by			.

Requirement 2. Suppose plant capacity were only

11,000

windows instead of

12,000

windows each month. The special order must either be taken in full or be rejected completely. Should

Reward One

accept the special order? Show your calculations.Complete the analysis below to determine if

Reward One

should accept the special order under this scenario.

		With One-Time
		Only Special Order
		Under Reduced
		Plant Capacity
		11,000 Windows
Revenues
Variable costs:
	Direct materials
	Direct manufacturing labor
	Batch manufacturing costs
Fixed costs:
	Fixed manufacturing costs
	Fixed marketing costs
Total costs
Operating income

Based on the calculations under this scenario, Reward One should				the one-time only special order under the
reduced capacity because accepting the order		operating income by			.

Requirement 3. As in requirement 1, assume that monthly capacity is

12,000

windows.

Reward One

is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of

$20

in the month in which the special order is being filled. They would argue that

Reward One's

capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should

Reward One

accept the special order under these conditions? Show your calculations.

Select the labels and then enter the amounts to calculate the net effect on operating income from accepting the special order under this scenario. (Use a minus sign or parentheses to show a net decrease in operating income from accepting the special order. Abbreviations used: Operating income = OI; Special order = SO.)

				Net increase (decrease)
	-		=	in OI from accepting SO
	-		=

Reward One

should

not accept

accept

the one-time-only special order under this scenario because accepting the order

increases

decreases

operating income.